Your financial goals — and how
long you have to meet them — will play an important
role in helping you decide how to allocate your investments.
For instance, let's say you're expecting a baby. Then paying
for a college education may become an important financial
goal. To make the most of the 17 or 18 years until your
child enrolls, you might emphasize growth investments,
such as stock and stock mutual funds, in your portfolio.
On the other hand, if you're investing to make a down payment
on a home in the next two or three years — whatever
your age — you may want to reduce your exposure to
volatile investments, such as stocks.
Retirement planning
If
you've got 20 or 30 years until retirement, you may decide
to allocate all of your portfolio to growth investments,
with the understanding that you'll have time to recoup
any losses to your principal. But, the closer you get to
retirement, the larger the percentage of your portfolio
you may want to allocate to investments that will provide
a reliable source of income, such as high-quality bonds,
or to investments that provide more liquidity,
such as cash equivalents or short-term bonds.
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates
In general, the further
away you are from your financial goals, the more risk you
can afford to take. And as your personal life or financial
goals change, you may need to reevaluate your asset allocation.
If
you've got 20 or 30 years until retirement, you may decide
to allocate all of your portfolio to growth investments,
with the understanding that you'll have time to recoup
any losses to your principal. But, the closer you get to
retirement, the larger the percentage of your portfolio
you may want to allocate to investments that will provide
a reliable source of income, such as high-quality bonds,
or to investments that provide more 
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates 